New Delhi, Dec 13
Pakistan is at a dangerous crossroads where the documented economy is suffocating, while the underground economy is thriving -- in the form of hawala counters in Dubai, the Telegram crypto groups operating from Karachi and Peshawar, the fake IT invoices flowing from single-room “export houses,” and the billions finding refuge in real estate, gold, offshore wallets, and double-invoiced trade routes, a new report has revealed.

According to the report in Pakistan-based publication Daily Times, the undocumented economy is expanding at a pace faster than any formal reform can catch.

“Money is quietly exiting the formal system not because people want to break the law, but because the system designed to hold money is slower, harsher, and more unpredictable than the channels designed to move it outside,” writes financial expert Jawad Saleem in the publication.

“The real Pakistan today is not the one recorded in SBP (State Bank of Pakistan) bulletins or FBR (Federal Board of Revenue) reports,” he says.

The uncomfortable truth is that people are not leaving the formal system because they enjoy illegality. They are leaving because the state has made formality financially irrational.

“A Pakistani exporter who waits 3-5 days for an inward remittance through a bank, gets taxed multiple times, and faces an FBR audit over every dollar, will naturally choose a hawala dealer who settles transactions in minutes with no paperwork,” mentions the report.

Moreover, a software freelancer who must submit contracts, NDAs, compliance forms, and foreign client details “before receiving a payment through official channels will prefer an offshore crypto wallet where payment arrives instantly and without scrutiny”.

Finally, a businessman who wants to buy machinery from China but is blocked for weeks by SBP approvals will “simply over-invoice, pay the difference abroad, and pass the transaction as a routine import”.

The report further reveals that dealers operate through WhatsApp, encrypted chats, and automated bots.

“Rate updates are shared in real time. Cross-border settlements happen through offsetting payments across Dubai, Malaysia, Bangladesh, and Turkey,” it adds.

With VPN access, Pakistanis buy USDT (a cryptocurrency stablecoin) directly from peer-to-peer markets, move it to offshore wallets in Dubai or Turkey, convert it into dirhams, and deposit it into foreign accounts.

People are not leaving the formal system because they enjoy illegality; they are leaving because the state has made formality financially irrational.

Meanwhile, studies by Global Financial Integrity estimate Pakistan loses billions annually through these practices.

“Gold market dealers openly transact in cash without CNIC verification. Many high-value property transactions are structured through ‘file’ trading or benami ownership, making them invisible to tax authorities,” says the report.

These behaviours directly affect Pakistan’s macroeconomic stability.

The International Monetary Fund’s (IMF) estimates that Pakistan’s tax losses exceed 6 per cent of GDP – an amount larger than the annual defence budget.

“But the damage runs deeper. When capital stays outside banks, deposit growth slows, private-sector lending shrinks, and the government becomes forced to borrow more from commercial banks,” according to the report.

It emphasised that the shadow economy is no longer a shadow; it is the system.

Hawala to crypto, Pak’s underground economy thrives sans any scrutiny